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Personal Finance is combination of maths and psychology. Just 1-10 % maths, 90-99% psychology, to my mind.
Economist has an insightful article on how irrational buying offers an opportunity for smart selling and advertising by brands/ companies.
Excerpts:
- “You would be amazed to find how often we mislead ourselves, regardless of how smart we think we are, when we attempt to explain why we are behaving the way we do,” Dichter observed in 1960, in his book “The Strategy of Desire”.
- He held that marketplace decisions are driven by emotions and subconscious whims and fears, and often have little to do with the product itself.
- Trained as a psychoanalyst, Dichter saw human motivation as an “iceberg”, with two-thirds hidden from view, even to the decision-maker. “What people actually spend their money on in most instances are psychological differences, illusory brand images,” he explained.
- Sigmund Freud argued that people are governed by irrational, unconscious urges over a century ago.
You may also read my Iceberg theory of money management.
What do you think? Are you aware of your own financial behavior?
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I think that to much methematics in economy can lead to a lack of confidence, like in the current crisis. Mathematicians are building too complex financial products, to my mind.
Your article contains interesting point of view.